Borrowing money from a family member is quite common. The reasons can vary widely, and these loans usually do not carry interest. Typically, the agreement is flexible: the money is repaid when possible, sometimes even in a single payment before a certain date, and often the deadline can be extended if necessary.
In principle, the person receiving the money does not have to pay taxes on it, because such loans are exempt from the Property Transfer Tax (ITP). And if the agreement is made in a private document, no tax is paid on Documented Legal Acts (AJD) either. In addition, if it is clearly stated that there is no interest, the lender does not have to declare anything in their personal income tax (IRPF).
The problem arises when the loan is not repaid. In that case, the tax authorities may view the transaction as a disguised gift. And if it was not formalized in a public deed, you can forget about the tax benefits that some Autonomous Communities offer for donations.
But that’s not all: the tax authorities may consider the person who received the money (the borrower) jointly liable for the lender’s unpaid tax debts. Here is how it works.
The tax authorities may say it is not a loan but a gift
If the money is not repaid on time and there is no formal request to return it, the tax authorities may conclude that it is actually a gift. This is confirmed by a recent ruling of the High Court of Justice of Asturias (23 October 2025), which explains that the tax administration relies on indirect evidence: it looks at the facts and, if it sees an intention to give the money rather than recover it, it treats the transaction as a gift.
In the case examined in the ruling, the loan was between a mother and her daughter. Not only was the repayment deadline missed, but the extension of the deadline appeared only when the tax authorities were already reviewing the case. Moreover, although the mother filed a lawsuit to recover the money, she did so too late — after the tax inspection had already ended.
The court summarized it this way: if for eight years not a single euro was repaid, if the mother did not demand payment and the daughter did not repay anything, if there is no record of earlier extensions and there is a close family relationship, everything suggests that the transaction was actually a gift.
Regarding the lawsuit, the court also stated that if it had not been for the tax inspection, the repayment would probably never have been demanded. There is also no evidence that the daughter repaid any money after the ruling.
As a result, the tax authorities classified the loan as a gift. Therefore, instead of being exempt from ITP, it becomes subject to Gift Tax — exactly what the mother and daughter were trying to avoid.
The tax authorities may require you to pay gift tax once the repayment deadline passes
So how long do the tax authorities have to act? The key factor is the repayment deadline. Until that deadline passes without repayment, the tax authorities cannot claim anything. The clock does not start when the loan agreement is signed, but on the day the money should have been repaid but was not. From that moment on, the tax authorities may review the transaction and require payment of gift tax.
If the lender files a civil lawsuit to recover the loan, the taxpayer does not have to pay gift tax. However, this only works if the claim is filed within a reasonable period after payments stop and is pursued until the end, including enforcement of the court ruling recognizing the right to recover the money.
If the loan is not claimed, the tax authorities may consider it debt forgiveness
Sometimes it is clear that the loan existed and that repayment was expected, but time passes and neither the money is repaid nor does the lender demand it, nor any interest if it was agreed.
In such cases, the tax authorities usually accept that initially it was a loan (which is why no ITP was paid). However, they may interpret the lack of a claim as debt forgiveness and therefore apply Gift Tax. The person who keeps the money and is no longer required to repay it would be the one liable for this tax.
The big question is: when can the tax authorities consider the debt forgiven? When does their right to claim gift tax expire?
The High Court of Justice of Madrid addressed this in a ruling in November 2018. It stated that a debt is not considered forgiven simply because it was not claimed on the exact due date. When a debt becomes due and remains unpaid, what arises is the possibility of claiming it through civil proceedings.
Therefore, it is only considered debt forgiveness once the lender’s civil right to claim the money has expired.
However, even before that limitation period expires, the tax authorities may look at certain indications suggesting that there was never any intention to collect the debt. For example, if the debtor was never formally asked to repay the money — neither judicially nor extrajudicially — or if the parties have a very close family relationship.
The tax authorities may make you liable for the lender’s tax debts
And one more important point: if the loan is not repaid and the lender had tax debts, the tax authorities may consider the borrower liable for those debts — up to the amount of the outstanding loan — under Article 42.2.a of the General Tax Law.
In such cases, the tax authorities often believe the loan was used to leave the lender without assets in order to avoid paying tax debts. In other words, the loan may be considered a simulated transaction intended never to be repaid.
It is not necessary for the lender to have already received a sanction or tax assessment when the loan was granted, nor for a tax inspection to have begun. It is enough that the tax debt existed and was payable, even if the tax authorities had not yet formally claimed it.
In short: repaying the loan is always the best way to avoid problems with the tax authorities. Otherwise, the transaction may be treated as a gift and subject to gift tax. In the worst case, the tax authorities may conclude that the whole arrangement was designed to help the lender avoid paying their tax deb
